EUR/GBP falls back as UK Services PMI matches expectations

• EUR/GBP has faced pressure around 0.8575 as UK Services PMI has matched expectations.
•  The UK economy is facing issues of labor shortages due to Brexit and early retirements.
• ECB Nagel has cited that the central bank has not reached the end of policy-tightening yet.

The EUR/GBP pair has retreated as the United Kingdom S&P Services PMI has matched expectations. The economic data has landed at 53.7 as expected by the market participants.

The Pound Sterling is expected to remain in a positive trajectory as inflationary pressures in the UK economy are expected to elevate further.  A poll from Reuters indicates that almost one in three female workers is expected to consider early retirement because of health issues. The economy is already facing issues of labor shortages due to Brexit and early retirements and now further increase in early withdrawal from work would propel red-hot inflation.

Considering the stubbornness in UK inflation, the Bank of England (BoE) is far from pausing the policy-tightening spell. UK Consumer Price Index (CPI) has turned sticky above 8.5% despite lower gasoline prices.

Meanwhile, UK firms are planning to shift investments to Germany to compensate for customs delays inspired by the Brexit event.

The Euro is expected to face pressure as preliminary Eurozone inflation has softened to 5.5% in June vs. the former release of 6.1%. Thanks to the drop in prices of oil but core inflation has marginally decelerated to 6.8% against the prior figure of 6.9%. This might allow the European Central Bank (ECB) to go slow on the policy-tightening spell. However, ECB policymaker Joachim Nagel has cited that the central bank has not reached the end of policy-tightening yet.

Higher interest rates by ECB President Christine Lagarde have pushed the Eurozone economy under threat. Citi has cut the real Gross Domestic Product (GDP) forecast in the Euro area to 0.3% and German’s GDP forecast to 0.2%.